Devon Energy Rallied Nearly 15% in Q1 While the Nasdaq Had Its Worst Quarter Since the Bear Market

Devon Energy (NYSE: DVN) got off to a great start in 2025. The oil company's stock price surged 14.3% in the first quarter, according to data from S&P Global Market Intelligence. What made that rally all the more impressive is that it came amid a tough period for the broader market. The S&P 500 was down 4.6% while the Nasdaq slumped 10.4%, its biggest drop since the bear market of 2022.

Here's a look at what fueled Devon's strong first-quarter rally and whether it has the fuel to continue heading higher.

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Ending and starting well

The first quarter was a relatively quiet period for Devon Energy. The only notable news was the oil company's fourth-quarter earnings report, which came out in mid-February. In commenting on the report, CEO Rick Muncrief stated: "I am proud to report that Devon ended 2024 with exceptionally strong results. Our operational performance was outstanding, underpinning robust financial outcomes and generating significant free cash flow."

The company produced a record 398,000 barrels of oil per day during the period, a 3% increase from the prior year. Meanwhile, total output averaged 848,000 barrels of oil equivalent (BOE), a 16% increase. Devon benefited from its acquisition of Grayson Mill Energy and the strong results from its Eagle Ford assets.

That production growth enabled Devon to produce robust cash flows. It generated $1.7 billion in operating cash flow and $738 million in free cash flow. It returned $444 million in cash to shareholders through dividends and share repurchases, retaining the rest to strengthen its balance sheet.

Meanwhile, Devon provided investors with an even more optimistic outlook for 2025 than its initial forecast. It expects production to average between 805,000 and 825,000 BOE per day, a 2% increase from its prior outlook. Devon anticipates delivering that higher production despite a roughly 5% reduction in its 2025 capital spending range or $3.8 billion to $4 billion.

That combination of higher production and lower costs positions the company to produce more free cash flow this year if oil prices cooperate. That was the case throughout the first quarter. The oil market was calm during the first quarter, with crude prices ending the period basically where they started. That means Devon should report strong financial results for the first quarter.

What's next for Devon

While the first quarter was a quiet period for crude oil, the second quarter has been a very different story. Oil prices are down more than 10% over the past week over concerns about how tariffs will affect the economy. Devon Energy has already given back its first-quarter gains and then some.

If crude keeps falling, it will put additional pressure on Devon's stock price. However, with most of its oil coming from regions with supply costs below $40 a barrel, it can still produce a lot of cash at lower crude prices. It can still have a decent year even if market conditions worsen.

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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.